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Tuition payment plan

Dear Dave,

Our son is graduating from high school next spring. We’ve saved cash to pay for his first year of college, and we have enough in mutual funds to pay for another semester. When should we pull out the money to use for his education?

– Denise

Dear Denise,

I wouldn’t touch the money until right before you write the checks. However, I don’t want you to follow my advice just because I said so. My mutual funds have made a little more than 16 percent this year. If they stay at that pace, or if they make just 10 percent during the first part of 2013, I’d want it to just sit there a while longer. Why not let the power of compound interest do its thing and make you as much money as possible?

The biggest question is what are you going to do for cash after the first three semesters? Your son needs to make sure he’s working summers, and maybe even part time during school, in order to fuel his education. And neither of you should borrow money to make it happen. You guys have gotten him off to a great start. So if he does his part, there’s no reason for either of you to go into debt for his college degree.

–Dave

Stop, emergency ahead!

Dear Dave,

If someone is following your plan, and they experience a health crisis, should they stop putting money into their debt snowball?

–Dave

Dear Dave,

Absolutely! When you’re stuck in the middle of an emergency, you should always push the pause button on your Total Money Makeover and save as much as you can.

Think of it this way. Cash is your umbrella when it rains, and you never know just how bad the storm will be or how long it will last. Even if you have great health insurance, you’re likely to end up paying a chunk out of pocket in situations like this. That’s why it’s important to have a big pile of cash on hand.

Remember, things like this are often just a bump in the road. They can be expensive, but taking care of important issues doesn’t have to mean giving up on taking control of your finances. Take care of immediate issues with yourself or your family first. Then, when things are better, pick up where you left off on your Total Money Makeover.

–Dave

Dave Ramsey has written four New York Times best-selling books: “Financial Peace,” “More Than Enough,” “The Total Money Makeover” and “EntreLeadership”. The Dave Ramsey Show is heard by more than 5 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.